Your Board of Directors is an essential piece of your ESOP – and building the right board for your company requires careful thought, strategy and vetting of potential candidates. The right board will position your company for growth and sustainability by providing input on the company’s business strategy, financial position and advising on any significant risk to the business. And, of course, the board is responsible for the pivotal task of hiring the right CEO during times of transition.
Your ESOP company’s process for finding and selecting a board member should be as rigorous as it would be for any executive level hire. Gone are the days of boards filled with golfing buddies and someone’s retired aunt. Adding to your board is a tremendous opportunity to add skills, knowledge and experience that your company might otherwise be lacking. But how do you decide what you need in your next board member? The first, essential step is defining the profile of your ideal (perfect) board member.
But where to start? It’s simple, really. Start with your company’s strategic plan. Where is your company now and where would you like to go? What are your current priorities? For example, if your ESOP is planning expansion by purchasing acquisitions, but lacking M&A experience, it would be highly advantageous to bring in a board member with significant experience in that arena. If the plan calls for adding new products or markets, adding a director with a background in strategic market would be beneficial. There are four areas of skills and experience you should consider when building the profile.
Industry Experience
Board directors with experience in your industry may be valuable to your growth plan, but directors with experience in adjacent or completely different industries can provide great insight (and inform expansion). A mix of both is ideal.
Functional Expertise
Finance, Operations, Sales, Human Resources, Marketing, etc. In what areas is your company sound, and in what areas could you use more expertise? Hiring board members with functional experience your company might be lacking is an ideal way to fill in gaps in expertise.
ESOP Experience
This is particularly important for new ESOPs to consider - a board member who is familiar with the mechanics of establishing and growing an ESOP. Or, perhaps your company can benefit from a director with experience leading a mature ESOP.
CEO and General Management Experience
Especially for a company with a first-time CEO, a season CEO (whether current or retired) may be helpful to provide depth of experience to the board, or even to provide mentoring for the CEO.
While simply having CEO level experience on the board will provide value, another level of value may be added by looking more deeply at the CEO’s experience. Because all CEOs grew their careers in a functional area, they can bring differing perspectives - a CEO who came up through finance will bring a different perspective than one who came up through sales. During board selection, this may be a small differentiator between candidates, but can often help determine which candidate will bring the greatest benefit.
In addition to finding candidates who strengthen your board and help you perform on your strategic plan, it is important to find board members who will be a great fit culturally. In an ESOP, it is essential for a new board director to embrace the principles of employee ownership. Measure candidates against the core values of your company, and ensure a team-oriented approach and collaborative management style.
Before your ESOP can add a board director, it is essential to know exactly what you want/need. Examine your strategic plan to define the ideal profile - with desired industry experience, functional expertise, ESOP experience and CEO/General Management experience - and don’t forget to incorporate core values, too!
